Archive for January 7th, 2010

This paper attempts to draw out the implication of the financial crisis for emerging markets. The most important implications will center on financial markets, where there will be less reliance on portfolio capital flows to finance investment and some deglobalization of banking so that the domain of bank operations more closely coincides with the domain of regulation. By contrast, the implications for other dimensions of globalization and for the structure of the international monetary system will be more limited.

No says this paper from Kris James Mitchener and Marc D. Weidenmier. They point to evidence from Gold Standard days.

Using a new database of weekly sovereign debt prices of paper currency and pound sterling (or gold) denominated debt, we identify the currency-risk component of sovereign yield spreads for nine of the largest emerging market borrowers for the period 1870-1913. Five years after a country joined the gold standard, paper currency bonds traded at significantly higher interest rates (more than 400 basis points on average) than a country’s foreign currency debt denominated in pound sterling. Investors also expected exchange rates to fall by roughly 20 percent even after emerging market borrowers had joined the gold standard. The presence of persistent positive currency risk premiums long after gold standard adoption suggests that hard pegs for emerging market borrowers may never be fully credible.

The authors say theirs is the first study to study the credibility of the hard peg via currency risk.

Given our interest in understanding the effects of exchange-rate regime choice on borrowing costs, the most direct way of testing the credibility of the gold standard is to examine the currency risk premium. Previous research on the gold standard has focused almost exclusively on country risk or political risk.

Our paper breaks new ground by examining thecurrency risk premium after gold standard adoption in order to assess the credibility of hard pegs for emerging market borrowers.

Using a database of 76,046 empirical economics papers published between 1985 and 2004 in the top 202 economics journals, the authors report two associations.

First, per-capita research output on a given country increases with the country’s per capita gross domestic product (GDP). Regressions controlling for data availability and quality in the country, indicators of governance and the use of English yield an estimated research-GDP elasticity of 0.37; surprisingly, the United States (US) is not an outlier in the production of empirical research.

Second, papers written about the US are far more likely to be published in the top five economics journals, even after the quality of research has been partially controlled for through fixed-effects for the authors’ institutional affiliations; the estimates suggest that papers on the US are 2.6 percentage points more likely to be published in the top-five journals.

This is a large effect because only 1.5 percent of all papers written about countries other than the US are published in the top-five journals. The authors speculate about the interpretations of these facts, and invite further analysis and additions to the public release of the database that accompanies this paper.

That is why the paper is nicely titled as – US and them: The Geography of Academic Research.

On economic research on India the authors say:

For those particularly interested in China-India comparisons, the last finding is puzzling since India has always produced good economists, now spread over various U.S. institutions, who could arguably contribute to research on the country. Three potential explanations for this puzzle stem from the weakness of this database as an indicator of knowledge production in the all economics sub-disciplines.

First, the database does not include theoretical contributions and many Indian-origin economists work on theoretical questions.

Second, it could be that while ethnic Chinese researchers generally seem to focus almost totally on China, the same is not true of ethnic Indian researchers.

And third, the database does not include research published in journals like Economic and Political Weekly—leading outlet for applied empirical work in the country.

Despite the caveats, it is worth emphasizing that these two weaknesses should not be overused. There could be a real dearth of applied empirical research in India; particularly since the extent of research was quantitatively similar in India and China in 1985, but has steadily increased in China for the last 20 years while it has stagnated in India.

Interesting points. True, India has produced excellent economists based in US univs. And it is from them only we get some good research on India. Adding eco and political weekly would lead to a higher research number but very few good papers.

So, most of the time you have to take papers based on other economies and see its lessons for India.

One main reason for the dearth of good research is quality of economics phd. Try and apply to a Indian University for a phd in economics . First you end up doing circles of the procvess. Finally when you get through, the program is not good enough. What you need is a revamp of the quality of phd in India. That should get us more economists working on Indian economy.